Number 1 Hot Topic is Number 1


This is your official warning — this is a post about politics, specifically Alaska politics.  I hate talking politics, but against better judgement I am covering a hot Alaskan topic.  So move along if you have no desire to read it.

If you are an Alaska resident reading this blog, I am not here to tell you which way to vote and hate bloggers who think they can tell you what to vote on, so I am going to be quick and to the point:
“Yes” on No. 1 Returns to ACES
“No” on No. 1 Keeps SB 21 (or MAPA).
Election Day is August 19th
Now head on out to your regularly scheduled non-political summer fun / moose spotting, and ignore the rest of this post.

For the rest of you in the Lower 48 let me start off with a couple of quick comments about Alaska Politics.

  1. Alaska politics is different than what you have, and you don’t understand Alaska Politics.
  2. Even if you think you understand Alaska politics, you don’t understand Alaska Politics.

Don’t assume that an Alaska politician is nothing but folksy people shooting bears, staring in reality TV, and judge themselves on whether or not anyone can see Russia.  Yes, Alaskan politicians tend to be more “of the people” than in the Lower 48 – just by the nature of so much of the state that is represented is small villages and towns.  Yet their job requires them to be on top of international relationships, mega-billion dollar corporations, and the most wealth rich resources in North America.  There is nothing to prepare the common Alaskan for that kind of responsibility.

On the books for an upcoming election is a proposition that typifies the challenge faced.  That is “Prop #1”, an effort to repeal Senate Bill  No. 21 [or the More Alaska Production Act (MAPA)] in place of Alaska’s Clear & Equable Share (ACES) act of 2007.  But first a little background.

The greatest source of money in Alaska is Oil.  Okay, maybe you knew that, but how much is the crazy thing.  On average these days, they pull 500,000 barrels of oil out of the ground per day.  Based on current crude prices that means there is nearly 19 Billion Dollars of oil leaving Alaska this year alone.  Part of that number ends up going into the cost of producing it & turning it into stuff like gasoline, part of that goes to the oil field lease owners (a native Alaskan corporation – thus there are no need for casinos here), but a large chunk is collected in taxes.  So much so that BP Exploration – Alaska alone pays for 40% of the State of Alaska’s Discretionary Revenue each year out of the taxes they pay.

There are a couple problems though, the biggest is that the oil production is declining.  When oil first started coming down the pipeline, it was humming at 2 million barrels a day.  The oil was so ready to jump out of the ground that they basically just poked holes and up it came.  You pull that much oil out of the ground, and the flow rate slows.  That’s not an Alaskan thing, that’s a hard fact about all oil wells, production just slows as the oil field gets older.  There are ways to overcome it, for instance Alaska’s oil is rich in Natural Gas, and since the pipeline can’t handle it (and there isn’t anyone up there to buy the gas) they pressurize it and pump it back into the ground.  Pumps can be put down well, and water can be sent down too.  Extending production, though is really about sinking money back into the field to get as much out of it.  Oil field management always is about return on investment; and because taxes can impact between 30 & 50% of the cost of oil, it carries a big concern in the investment you make.

The decline was in full swing about ten years ago, and the old tax system was a major hurdle.  Politicians saw this in 2006 and passed a pretty low tax rate bill.  Like, extremely low tax rate.  Turns out it was too low.  Way too low.  So low that the FBI showed up and found out that some un-kosher things were going on; and a number  people ended up in jail.

Most of those politicians were run out, and a more ‘anti-big company’ legislatures came in, including a small town Governor intent to return to a higher tax system to get corporations under control – named Sarah Palin (chances are you have heard of her).  She instituted in 2007 ACES, a plan that gave some incentive for capital investments but focused more on a progressive tax system that return more money to the state when the big companies are making the most profit.  It would have theoretically worked if the price of oil stayed around $70/barrel.  Which it didn’t (it’s currently $103/barrel).  The decline worsened and a shale oil boom in North Dakota & Texas made Alaska non-competitive for the available investment money.  Alaska was losing production faster than anyone expected.

In 2013, Governor Palin’s replacement Governor introduced a bill (SB 21 or MAPA) to set everything at a flat tax rate, but give greater incentives for capitol investments.  It flipped the tax system in the other direction.  However, there is a question if it is too much of a break.  The truth is, noone can really know because we can’t predict either what the price of oil will do, or how quickly the oil will decline in the future.

Of course there were opponents of the new bill.  Some opponents, upset by the new system, felt that it was just giving too much of the oil money out of Alaskan’s hands and into the oil company’s hands.  So after a successful petition campaign, a proposition on this month’s election would allow that law to be repealed.  In other words, they put the decision into the hands of the voters.

This means — it’s on this month’s ballot — and because it’s a political thing, it is ugly.

Supporters of the repeal are mostly funded by organizations who also fund equal pay initiatives – meaning there is not that much financial support even if there is considerable backing by voters.  On the flip side, those against this repeal include every oil company, and every company tied to oil production in Alaskan … or … all of them.  It’s said that the “no” campaign is outspending the “yes” campaign by a factor of over 10 to 1.  As much as this should make people upset that one side is spending more than the other, most on both sides are saying “if I stood to make a couple hundred million dollars, I could see affording to spend a few thousand”.

You can bet that working in a company that has a pretty big dog in the fight, we hear about this proposition quite often … and by quite often I mean, you don’t go anywhere without seeing information or media to support a “No on No. 1” vote.  But I kinda shuck it off.  I am voting, I know how I will vote, but that’s not my company’s buisness to know.

So there … that’s the hot news up this way … now let’s get back to random pictures of my dog and other fun moose stuffs.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s